There’s been an awful lot of discussion lately about the real estate market across the country, but more specifically here in Hawai`i. There does not seem to be a slowdown in price appreciation, buyer interest, or the people flooding into Hawai`i. At the end of last year, I addressed some of the factors I see at play and why the market is not going to slow down here anytime soon. If you’d like to reread that article, please click here:
A lot of the reasons I stated in that article apply to what we’re talking about in today’s blog. Today, there are entirely different economic and demographic factors at play than when the last bubble burst in 2007.
In looking at what led up to the 2007 crash we can now clearly see what elements came into play:
- There was a heavy amount of inventory, built purely on speculation.
- The appraisal system had run amok and homes were drastically overvalued.
- The lending system had gone afoul and just about anybody, including your dog, could get a loan. No documentation loans, subprime lending, and 125% mortgages all spelled disaster.
- Loans being passed off in the secondary market as “A”-rated, when they were far from “A” paper.
In summary, you had over-speculation, people having no ability to pay their home loan, no equity in the home, no cash, artificially inflated prices, and corruption. No wonder the bubble burst!
This time around none of the 2007 factors are at play:
- There is no inventory – the demand exceeds the supply.
- The appraisal system has been fixed, in part.
- Risky loans are a thing of the past. More people have equity in their homes today than at any time in recent memory. In fact, the lending requirements get tighter each day.
- Wall Street is more wary of mortgage-backed securities.
But today’s red hot real estate market in Hawai`i has nothing to do with the economic factors I’ve mentioned above. The number one reason this is not a bubble is a fundamental shift in migration patterns. The pandemic has forever changed where people want to live, work and play. All at once, you have millions of people who decided to pack up and move because they feel that one part of the country is better than another part of the country.
Never have we seen this type of shift happen so quickly and no one could have predicted it. Right now, Hawai`i is perceived as one of those places in the country that’s better than another place in the country. As long as that perception and migration shift continues, then real estate here on these islands will continue to go up, up, and up with no bubble. So, I don’t wanna burst your bubble, but if you’re waiting for some type of crash, I think you’re gonna be waiting for a long time. Prices could stabilize and appreciation could slow down, but the question is slow down from what? Slowdown from 20% appreciation down to 5% appreciation? If you said to me, “hey if you buy a home on the Big Island of Hawai`i and it’s going to appreciate 5% year over year,” I’d say OK where do I sign up. Do you see what I’m getting at? Don’t wait to buy, because you’re putting that money in someone else’s pocket. Buy now and put the appreciation in your pocket.
Dan Polimino is the owner of the Hawaii Team in Kailua-Kona, Hawai`i. He and his team are the luxury residential experts for the Big Island. If you are thinking about buying or selling in
Hawai`i, then please reach out to us at team@thehawaiiteam.com or call 808-913-0899.
